SEC Money-Fund Talks Included Idea to End Outflows in Crisis
U.S. Securities and Exchange Commission Chairman Mary Schapiro, who said she couldn’t get fellow commissioners to agree to tighten money-market fund rules, rejected an alternative that would give funds authority to halt or limit withdrawals in times of crisis, according to a person with direct knowledge of the discussions.
Schapiro said in a statement yesterday that she canceled a vote on her plan to give funds the choice of switching to a floating share price or establishing a capital buffer with redemption restrictions. She said three of the five commissioners told her they wouldn’t support the idea.
At least two commissioners previously made a counterproposal that would allow firms running money funds to stop investor flight, similar to how hedge funds operate, said the person, who spoke on condition of anonymity because the talks have been private. The so-called gating proposal also would have required additional disclosure to investors about the risks of putting money in the funds, the person said.
In the wake of the 2008 collapse of the $62.5 billion Reserve Primary Fund, the SEC tightened oversight with new rules in 2010. Schapiro in a Nov. 7 speech suggested the further moves, which critics in the money-fund industry have said could drive investors away from the products.
“Given the current volatility of the capital markets and the fragile state of the economy, the timing of this proposal and its collateral consequences could be needlessly harmful,” Commissioner Luis Aguilar, one of the three standing against the proposal, said in a statement today. He said a study of the previous overhaul is needed before making more changes.
The chairman had rejected an idea Aguilar posed to issue a so-called concept release to gather public comments on money- fund oversight instead of formally proposing changes, the person said.
In her statement, Schapiro said the susceptibility of funds to runs “needs to be addressed” and that the rule she supported would have sought public comment on additional possible options including gating.
The SEC has been “engaging for two and a half years on structural reform of money market funds,” Schapiro said. “A concept release at this point does not advance the discussion. The public needs concrete proposals to react to.”
Aguilar, a Democrat and former general counsel at Atlanta- based money-management firm Invesco Ltd. (IVZ), told Bloomberg News in January that he thought the earlier reforms of the money-market system were working and said he was “concerned about unintended consequences” from more changes.
“The chairman has been open to all ideas throughout the process,” said John Nester, an SEC spokesman, declining to comment on any specific proposals. Schapiro, who is a member of the Financial Stability Oversight Council as SEC chairman, will now “work with other government agencies on money market fund reforms to better protect investors and taxpayers,” Nester said.
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